Global Commercial Investment Returns with a Vengeance in 2021
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Global real estate investment in commercial real estate grew 98% year over year to $ 260.4 billion in the second quarter of 2021, as vaccinations pushed ahead and the global economy reopened, according to global real estate advisor CBRE.
The recovery has been robust in both America and APAC, bringing volume back to pre-COVID levels. The EMEA lagged slightly but retained its positive outlook due to successful vaccinations. For example, the UK recorded a strong quarter of investment activity even by pre-COVID standards.
Key takeaways on global investments:
- Global investment in commercial real estate increased 98% year over year to $ 260.4 billion in the second quarter, bringing the total to $ 459 billion in the first half of 2021 – an increase of 15% over the first half of 2020 .
- Volume in America and APAC returned to pre-COVID-19 levels in the second quarter, while volume in Europe is expected to rise again in the second half due to the economic recovery and widespread COVID-19 vaccination.
- Capital continued to flow mainly into industrial and apartment buildings, while office investors continued to focus on core assets.
- Investors preferred markets with high population growth, including those in the US sunbelt, German and Nordic metropolitan areas, and Tier I cities in the Asia-Pacific region.
Global investments in the first half of 2021 grew 15% year over year to $ 459 billion. The office sector had the largest share at 26% of total investment in the first half of 2021, followed by industry at 22% and apartment buildings at 20%, reflecting accelerated consumer and demographic trends.
The American
America’s investment volume rose 161% year over year to $ 136.5 billion in the second quarter. Excluding corporate-level transactions, investment grew 151% year-on-year, fully back to pre-pandemic levels. The better-than-expected Q2 volume offset a weak Q1, resulting in a 31% year-over-year increase in volume from H1 2021 to $ 241 billion, down 6% from H1 2019.
The investment volume increased significantly from a low base across all sectors year-on-year. Industrial and multi-family houses accounted for almost 60% of the investment volume in the region and grew by 127% and 217% respectively in the second quarter compared to the previous year. The hotel sector had its most active second quarter since 2007. The $ 6 billion acquisition of Extended Stay America by Blackstone and Starwood accounted for 44% of total hotel volume in the second quarter. Excluding corporate-level transactions, hotel investments increased 691% year-over-year in the second quarter and 5% year-over-year.
Office and retail investors continued to focus on core assets. The share of the office sector in total investment fell in the 2nd quarter from an average of 27% in the years 2015 to 2019 to 18%. The retail share fell from 15% on average between 2015 and 2019 to 10%, mainly driven by higher returns.
The Sun Belt markets continue to be the top targets for US investors as population growth drives demand for real estate. When comparing the investment volume in the second quarter of 2021 with the second quarter of 2019, Orlando (+ 83%), Nashville (+ 73%), Raleigh (+ 63%) and Miami (+ 45%) were the largest metropolitan areas in terms of growth, while Tier -I cities like New York (-41%) and Boston (-28%) lagged. Due to the higher population density and greater reliance on public transport, Tier I cities have taken more time to fully reopen, which has dampened their investment activity.
EMEA
Investment in the EMEA region increased 42% year over year to $ 83 billion in the second quarter. Investment volume in the first half of 2021 declined 11% year-over-year due to a record quarter in the first quarter of 2020. Volume in the second half is expected to increase once parts of the region achieve herd immunity to COVID-19.
The UK (+ 39%), Norway (+ 38%) and Denmark (+ 55%) saw strong year-over-year growth in the first half of the year as they lead the region’s vaccination rates. Germany remained on a solid footing; in Berlin and Munich the volume in the first half of the year was above the average from 2015 to 2019. Population growth played an important role in the resilience of these markets. The Nordic countries and the UK have population growth rates higher than the Eurozone, and their main markets such as London and Copenhagen are top destinations for cross-border capital.
The office sector’s share of total investment fell from around 40% before COVID to 30% as capital moved to multi-family and industrial facilities. Compared to the second quarter of 2019, industrial investments more than doubled in the second quarter of 2021, which shows the effect of e-commerce growth in Europe. Investments in apartment buildings increased by 3% compared to the second quarter of 2019. Meanwhile, offices (-19%), retail (-27%) and hotels (-34%) had to drive the recovery in investment activity further. Highly contagious COVID variants may have weighed on investor sentiment and increased uncertainty about the pace of reopening plans.
APAC
The APAC region’s investment volume increased 99% to $ 41 billion in the second quarter and 51% to $ 69 billion in the first half of 2021. Vaccination rates in the region picked up and investment activity largely normalized. Assuming no large-scale COVID-19 resurgence later this year, 2021 is likely to be a phenomenal year for commercial real estate investment based on the region’s economic performance.
Large-volume transactions made a significant contribution to the recovery in the second quarter. Deals of $ 1 billion or more accounted for 25% of the region’s investment. In addition, cross-border transactions increased 65% year over year in the second quarter. Capital expenditures in mainland China (+ 117%) more than doubled year-over-year in the second quarter, partly due to Brookfield’s portfolio acquisition of prime malls worth $ 1.4 billion. India’s investment volume increased 354% year over year in the second quarter, driven by Blackstone’s $ 700 million investment in industrial parks in emerging Indian cities such as Hyderabad and Pune. Australia (+ 196%), Hong Kong SAR (+ 270%) and South Korea (+ 69%) also saw robust capital flows.
Overall, investors preferred Tier I cities in the region, with Seoul (+ 56%), Beijing (+ 113%) and Melbourne (+ 48%) in the first half of 2021 a clear comparison with the average for the first half of 2015 to 2019 Growth in investment volume Indian markets such as New Delhi and Bangalore also recorded significantly higher investment activity, particularly in the office sector.
Retail investments accounted for 31% of APAC’s total investment volume in the second quarter, compared to an average of 10% in the second quarter between 2015 and 2019. Australia and China were driven by heavy office investments, with the SK Tower in Beijing costing US $ 1.4 billion Dollar was sold. Industrial equipment remained in high demand in the region, with total investments totaling $ 10.6 billion in the second quarter – the highest quarterly amount ever recorded.
Future forecast
Based on the stronger-than-expected performance in H1, CBRE now predicts that the annual global investment volume will increase by around 20 to 25% in 2021 (from 15 to 20% previously). The COVID resurgence is likely to delay a full return to pre-pandemic investment levels, but policymakers are unlikely to reinstate full lockdowns. Short-term restrictions to avoid widespread carryover of Delta and other new variants will be more likely.
